This is one of the most confusing things for most people. Speaking as someone who has done my share of griping about Microsoft policies, I have to say that the Terminal Services licensing scheme is complicated due to the role of Terminal Services, not due to a deliberate attempt at obfuscation (really!).
The key to understanding it is that a Windows 2000 Terminal Server is simply a per-seat licensed Windows 2000 Server with ONE NEW LICENSED COMPONENT : Terminal Services.
One more thing to remember is that not every TS license requires money change hands again; that is one of the most mis-understood elements of TS.
Standard Windows 2000 Server needs a license always.
What happens next depends on how you are using TS.
If we understand that, we only need to understand one more thing: the Windows 2000 Terminal Server client licensing; together they make up the license you need for standard authenticated Terminal Services sessions.
Internet Connector for Terminal Services licensing is distinct from the above; you don't need either.
When you install a plain, bare-bones Windows 2000 server, you need a license to use it, for the same reason you would need a license to install Win98 or Windows 2000 Professional: you have purchased an operating system, and the license is for it: the Windows 2000 Server License.
That's it; one server OS license is required for everyone.
Authenticated users log on with distinct identities. For Terminal Services clients, this means you use the server as a server (it provides secure services) and as an interactive desktop workstation.
If you want to use the integral security in Windows 2000 server and have it provide file and print services, you need one client access license (CAL) for each device connecting to the system. Since a TS client obviously does use these services - at the very least running software on the Terminal Server - you need 1 standard CAL per system connecting to it. This must be done in per-seat mode, since the TS licensing on top of that is per-seat licensing.
That's it; 1 CAL per seat. We're ready to look at Terminal Server licensing. Keep one thing in mind, as we start the next section. With the server, you had to buy a distinct license; with the CALs, you had to buy a distinct license; with Terminal Services, some of your licenses you get without paying anything new.
When you are using Windows 2000 Terminal Server, you are doing something completely new - you are using the server as your desktop OS. Everyone who logs on to the TS system is using it as their OS. The reason that this requires a license should be obvious; if you are going to use Windows 2000 as your operating system, Microsoft would like you to pay for it. As a result, every single device that connects needs a license. No exceptions, none. Got it? One seat means 1 license.
Now, for administrative use, you get a freebie: 2 floating administrative connection licenses. That means you can access any TS in the world from anything that works. If you have a retrofitted Amiga with a wireless LAN connection and use it to do remote domain admin, have at it - as long as you have your standard CAL, that is.
What about "ordinary" users? Well, that brings us to a Microsoft "kickback". You get some licenses without paying a penny.
Microsoft presumes that if you are on a workstation that has an equivalent or newer OS to the Terminal Server, you have obviously already paid for a desktop operating system. You're not trying to use a DOS client and get a "free" Windows 2000 desktop environment.
As a result, if you hook up a Win2K Pro system and an XP system to terminal server sessions, then take a look at the license manager, you will see that the systems have been issued built-in licenses.
For Windows 98 or NT4, this doesn't apply. No free upgrades; you have to actually buy a license. Bear in mind that it might be nearly as cost-effective to upgrade your client systems to Win2K or XP. Even the price differential (add the cost of an OS upgrade, minus the cost of a TSCAL) can be overwhelmed in a year or two when you have a substantially reduced OS upgrade cost.
Internet Connector Licensing is different, and the CALs and TS-CALs are not relevant to it. In a nutshell, here's how it works.
Let's say you just want to allow people to use Terminal Services over the Internet. There is no identity-based security implemented, so everyone logs on (possibly automatically) with the same TSInternetUser account. You can still implement access controls in various ways, but the basic idea is that all users will look the same.
You can get a 200-simultaneous-user license as described in Internet Connector License Types for Windows 2000; this is available only through the Select Volume Licensing program.
One caveat is that as described in Terminal Services Internet Connector License and ASPs, ASPs cannot use this model for a paid service.